Amazon shareholders approve 20-to-1 stock split. Here’s what investors need to know.

Amazonit is (AMZN 3.66%) the highly anticipated stock split will take place on June 3. Shareholders approved the 20-for-1 stock split at the company’s annual meeting on May 25.

If you’re wondering how the Amazon stock split will impact your portfolio, below is a crash course in how stock splits work.

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Behind the scenes of Amazon’s upcoming stock split

Stock splits made headlines in 2022. In March, Amazon joined the tech gang by announcing that its 20-to-1 stock split had been approved by the board. The stock jumped after the news, but shares of the tech giant fell to their lowest level in 52 weeks days before the company’s 2022 annual meeting of shareholders.

Amazon shares have had a few bumps and bruises, but that won’t impact the stock split. Shareholders gave Amazon the go-ahead to proceed with a stock split at the annual meeting of shareholders. All shareholders of record by May 27 will see an additional 19 shares for each share they hold on the big day. If you have two full shares of Amazon in your account before the deadline, you will receive an additional 38 shares after the stock split.

The stock split will take place on June 3 and the price per share will reflect the June 6 split. This will make it easier for small investors to buy shares of Amazon at an affordable price.

Stock splits won’t make you rich overnight

While stock splits tend to get investors excited, it’s not as glamorous as it sounds. A stock split by itself will not make you rich overnight. It’s more of a cosmetic transformation. Each share of stock will be divided into smaller pieces. This gives more people the opportunity to own whole stocks at a lower price.

You can think of a stock split as exchanging a $20 bill for 20 singles. Although you have more dollars in hand, the value of the money in your possession is still the same.

The stock split will allow investors to buy whole shares of Amazon at a lower price. After the Amazon stock split, the four-digit stock price will drop to $115 if the stock trades at $2,300 before the stock split.

The Future of Amazon Stock Price

It is not uncommon for a company’s stock price to explode after a stock split. However, you cannot guarantee that Amazon’s stock price will rise after the split.

The best decision you can make is to invest in companies based on the underlying business. Go behind the scenes and evaluate the business by asking the following questions:

  • Is the company’s turnover sustainable?
  • What are the factors that generate income?
  • Are there any threats or weaknesses that may interfere with future growth?

Answering these questions will force you to do your research and determine if the company fits your goals and risk tolerance. A stock split can be a motivation to get started, but it won’t be enough to boost a company’s performance in the long run.

Selling Amazon shares after the split

If you decide not to keep your additional shares after the stock split, you may have to pay taxes. It depends on how long you’ve held the stock and your taxable income for the year.

For example, if you bought shares of Amazon after the stock split announcement and sold your additional shares after the stock split, you will be liable for short-term capital gains taxes. This is what happens when you sell stocks that you have held for a year or less.

However, if you don’t get your extra shares in your account, you don’t have to worry about taxes. A stock split is not considered a taxable event for investors.

Don’t be fooled by stock splits

This year’s hype might have you stocking up on company stocks that weren’t even on your radar. A stock split in and of itself shouldn’t be the main reason you buy a stock. You may see a temporary rise in the share price after the split was announced, but that’s not enough to calm investors in this volatile market.

That’s not to say you can’t get excited when a stock split is approaching. If you see long-term value in a company, there’s no shame in celebrating your additional shares received from a stock split. This may be the boost you need to reach your target number of shares and execute other strategies in your account that can take you to the next level in your investment journey.

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